Regarding LIABILITY after GST number cancelled.

[JIGNESH SITAPARA]

Dear Experts,

My client GST number cancel (suo_moto) since last 3 years. Now, he applying new registration number on same pan. But department issue notice and require bank statement for the period which was cancelled GST number. Now, my client was continually business after the cancel the GSTIN and many credit entry shown in bank statement also. Now, will the department be able to issue demand notice for paying taxes for releated this period ?

[KASTURI SETHI]

Answer is YES. You cannot escape liability of tax along with interest even after the cancellation of GST registration. Time bar factor has to be examined.

What is the date of order of cancellation of registration ?   

What is the period involved ?

[JIGNESH SITAPARA]

The cancellation date is 01/04/2023 to till date. But Maam my client has not issue any sales invoices, only credit entry shown in Bank. Now, department treat this credit entry against income of sales ?

[Ryan Vaz]

Yes. The department can legally issue a demand notice for GST, interest, and penalty for the period during which the GSTIN was cancelled if the client continued taxable business without registration. Cancellation does not wipe out tax liability. Bank statements showing credit entries are valid evidence to initiate proceedings.

[JIGNESH SITAPARA]

Thanks you so much........

[Ryan Vaz]

Detailed Explanation

1. Effect of Suo Motu Cancellation

   • Once GST registration is cancelled, the person loses legal authority to make taxable supplies.

   • However, tax liability does not disappear merely because registration was cancelled.

2. Business Continued After Cancellation

   • Since your client continued business operations and bank statements show credit entries (receipts), the department can:

     • Treat him as an unregistered taxable person.

     • Reconstruct turnover using bank statements, third-party data, or physical verification.

3. Assessment & Demand Powers

   • Under Section 63, the Proper Officer may issue a Best Judgment Assessment Order.

   • Demand can be raised under:

     • Section 73 – if no fraud/suppression (normal cases), or

     • Section 74 – if suppression, wilful misstatement, or intent to evade tax is alleged.

4. Tax, Interest & Penalty Exposure

   • GST payable on outward supplies during the cancelled period

   • Interest under Section 50

   • Penalty under Section 122:

     • Minimum ?10,000 or

     • Amount equal to tax evaded (whichever is higher)

5. Why Bank Statements Are Asked

   • During fresh registration, officers verify:

     • Past compliance history on the same PAN

     • Whether taxable turnover existed earlier

   • Credit entries are treated as prima facie evidence of taxable supplies unless proven otherwise.

6. Fresh Registration Does Not Give Immunity

   • New GSTIN ? clean slate

   • Liability of the earlier unregistered period survives and can be pursued separately.

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Caveats & When Human Review Is Needed

• If credits include non-taxable receipts (loan, capital introduction, transfers, exempt income), proper classification is critical.

• If limitation period (5 years under Section 74 / 3 years under Section 73) is close, timelines must be checked carefully.

• Risk of Section 74 (fraud) invocation is high if business continuation was deliberate.

[KASTURI SETHI]

W.r.t. 1.1 above, credit entry is income. The burden of proof is cast upon you to prove that it is not taxable.

[KASTURI SETHI]

SCN can be issued only after complete investigation. Each credit entry may not TAXABLE income.

AI Summary

GST liability for taxable supplies after registration cancellation: best-judgment assessment and demand can rely on bank credits. Cancellation of GST registration does not extinguish liability to pay GST on taxable outward supplies made during the period of cancellation; tax, interest and penalty may be demanded if the person continued making taxable supplies without registration. For such period, proceedings may be initiated treating the person as an unregistered taxable person, including best judgment assessment under section 63 and demand under section 73 (non-fraud cases) or section 74 (suppression/wilful misstatement/intent to evade), with interest under section 50 and penalty exposure under section 122. Bank statement credit entries may be relied upon as prima facie evidence to reconstruct turnover, and the taxpayer bears the burden to substantiate non-taxable receipts; limitation/time-bar must be examined.